The Recession Has Finally Begun, But Only For America's Rich
Summary
TLDRThe video discusses the 'Richcession' in America, where wealthy individuals face a recession due to stagnant inflation and a struggling stock market. Despite a slight market rebound in 2023, high-income earners are feeling the pinch, with increased unemployment claims and cautious spending due to factors like wage stagnation and job insecurity. The downturn in the stock market, a key driver of wealth, is leading to a decline in consumption, which could further slow economic recovery. The video also touches on the potential for wealthier individuals to take advantage of a recession by investing in undervalued assets, suggesting they may bounce back quickly.
Takeaways
- 📉 The script discusses a looming recession, with predictions for it to occur by the end of this year or the beginning of next year, characterized by rising food and energy prices.
- 💼 Despite the Federal Reserve's monetary policy, the economy is expected to cool off, and the wealthy are particularly affected by sticky inflation and a weakened stock market.
- 💼 The 'Wealth Effect' is highlighted, explaining how a decline in the value of financial assets can lead to reduced consumption, potentially contributing to a stagnant economy.
- 📈 The script notes a 'Rich Recession' where high-income earners are disproportionately affected, with an increase in unemployment claims among this group.
- 🏦 The stock market, a significant driver of wealth creation and destruction, is expected to continue facing challenges, affecting the wealthy's net worth.
- 📉 The S&P 500 experienced a 19% drop in 2022, leading to a loss of 1.8 million millionaires in America, according to UBS's 2023 Global Wealth Report.
- 💼 High-income households are reported to have weak economic confidence and are more cautious with spending due to factors like soft wage growth and job creation.
- 💳 There's a rise in household debt, particularly credit card debt, even as high-income households continue to purchase discretionary items.
- 📉 The luxury market saw a decline in US sales, with major brands like LVMH and Richemont reporting drops, indicating a slowdown in spending among the wealthy.
- 🌐 Global wealth is projected to rise by 38% over the next five years, but the current US recession and stock market performance could impact this growth.
- 💹 The wealthy are expected to take advantage of a potential recession by investing in safe havens and buying assets at distress prices, which could grow their wealth over time.
Q & A
What economic scenario does the speaker predict for the near future?
-The speaker predicts a stagflationary environment leading to a recession by the end of the current year or the beginning of the next year, characterized by rising food and energy prices.
Why is the market pricing in a recession?
-The market has been pricing in a recession since the beginning of the year due to concerns about economic indicators and the potential impact on consumer spending and wealth.
What is the 'Wealth Effect' mentioned in the script?
-The 'Wealth Effect' refers to the phenomenon where a decline in the value of financial assets leads to a decrease in consumption, which can contribute to a stagnant economy.
How did the stock market perform in 2022, and what was its impact on household net worth?
-In 2022, the stock market was down sharply, and home prices fell, particularly in tech job-driven markets, significantly impacting the net worth of many households.
What trends were observed in the job market for high-income earners?
-There was a significant drop in job listings in banking, finance, and tech sectors, with companies like Microsoft and Google announcing substantial job cuts.
According to UBS's 2023 Global Wealth Report, what happened to the number of millionaires in America in 2022?
-America lost 1.8 million millionaires in 2022, primarily due to a weak stock market performance.
What does the Bank of America's August 2023 consumer checkpoint survey reveal about high-income households?
-The survey reveals that high-income households have weak economic confidence, are more cautious about spending, and are facing stretched budgets, leading to increased credit card debt.
How does the wealthy's spending behavior affect the economy?
-The wealthy's spending behavior is crucial as they account for a significant portion of consumer spending. Reduced spending by the wealthy can slow down the economy and affect companies that rely on their spending.
What is the projected global wealth growth according to UBS's report?
-Global wealth is projected to rise by 38% over the next five years, reaching $629 trillion by 2027, with the number of millionaires expected to grow to 86 million.
What is the potential opportunity for wealthy investors during a recession?
-A recession can be seen as a 'garage sale' for the wealthy, where they can buy assets at distress prices, potentially growing their wealth over time as the market rebounds.
Outlines
📉 Recession and Its Impact on America's Rich
The video discusses the arrival of a recession, initially predicted for the end of this year or the beginning of next, which has now arrived, impacting America's wealthy population. The recession is characterized by a stagflationary environment with rising food and energy prices, which the Federal Reserve's monetary policy cannot easily address. The stock market, a significant driver of wealth creation and destruction, has seen a decline, leading to a 'rich recession.' High-income earners are facing unemployment, and the wealth effect is causing a decrease in consumption, which could lead to a stagnant economy. The video also notes that the stock market's performance in 2022 was poor, affecting household net worth, but there was a slight rebound in 2023. Despite this, economic uncertainties and the impact of inflation on spending persist, leading to a cautious approach to wealth management among the rich.
💼 Economic Challenges and the Wealthy's Spending Habits
The video script highlights the economic challenges faced by the wealthy, including a decline in the stock market and a subsequent drop in household net worth. Despite a slight market rebound in 2023, the economic hurdles from the beginning of the year remain. The script discusses the impact of high inflation and the cost of living on the wealthy, who are now relying more on credit cards and facing a potential recession. Job market listings in banking, finance, and tech have seen significant drops, with major companies like Microsoft and Google announcing substantial layoffs. The UBS Global Wealth Report indicates that America lost 1.8 million millionaires in 2022, primarily due to a weak stock market. The Bank of America's August 2023 survey reveals that high-income households have weakened economic confidence and are more cautious with spending. The video also touches on the 'wealth effect,' where the declining value of financial assets leads to reduced consumption, which can slow economic growth. The script concludes by suggesting that a recession could be an opportunity for wealthy investors to purchase assets at distressed prices, potentially growing their wealth over time.
Mindmap
Keywords
💡Recession
💡Stagflation
💡Wealth Effect
💡Stock Market
💡Inflation
💡Job Cuts
💡Millionaires
💡Consumer Spending
💡High Income Earners
💡Credit Card Debt
💡Safe Haven Investments
Highlights
Economic recession is anticipated by the end of this year or the beginning of next year, characterized by stagflation with rising food and energy prices.
The Federal Reserve's monetary policy is unlikely to alleviate the current economic challenges.
The U.S. economy is expected to enter a recession by mid-next year, affecting the wealthy disproportionately due to sticky inflation and a weakened stock market.
Wealthy Americans are facing increased unemployment claims, impacting their financial stability.
The stock market, a primary driver of wealth creation and destruction, is under pressure, affecting the wealthy's net worth.
The 'Wealth Effect' is discussed, where a decline in financial assets leads to reduced consumption, potentially stagnating the economy.
The stock market downturn in 2022 had a significant impact on household net worth, with some recovery in 2023.
Despite a slight bull rally in summer 2023, economic uncertainties persist, affecting consumer and investor confidence.
Tech and finance sectors have seen significant job cuts, with major companies like Microsoft and Google reducing workforce.
America lost 1.8 million millionaires in 2022, primarily due to a weak stock market, according to UBS's 2023 Global Wealth Report.
High-income households are experiencing weak economic confidence and are more cautious with spending.
Household debt, particularly credit card debt, has increased as high-income earners struggle with budget constraints.
The stock market's performance is critical for the wealthy, as it is their primary source of wealth.
Luxury companies are experiencing a decline in U.S. sales, indicating a slowdown in spending among the wealthy.
The wealthy's spending habits are crucial for economic recovery, as they account for a significant portion of consumer spending.
Global wealth is projected to rise by 38% over the next five years, with the number of millionaires expected to grow.
Wealthy investors are expected to take advantage of a potential recession by investing in safe havens and buying assets at distress prices.
Transcripts
[Music]
so that recession everyone was worried
about earlier this year we're in a
scenario where we have a stagflationary
environment I think the economy is going
to cool off I think we'll have a
recession by the end of this year or the
beginning of next year and we'll still
have Rising food prices and Rising
Energy prices and unfortunately the
fed's monetary policy just can't change
that I think the market has been pricing
a recession since the beginning of the
year and then began worrying about it
again but our base case is that the US
economy will go into recession by the
middle of next year turns out that
recession everyone was worried about has
finally arrived but right now it's only
for America's Rich sticky inflation and
a weakened stock market continue to
disproportionately pressure wealthy
Americans as more and more High income
earners by unemployment claims according
to Bank of America's August 2023
consumer checkpoint survey the biggest
engine for wealth creation in the world
the driver of wealth is the stock market
it is also the driver of wealth
destructions so why should we care about
this so-called Rich session because of
something called The Wealth effect
that's when the declining value of
financial assets leads to a decline in
consumption and since the US economy
relies on consumer activity for most of
its growth fewer people buying fewer
things can lead to a stagnant economy
here's why the long awaited recession
has arrived for America's rich and why
it matters for everyone
[Music]
else
2022 was a year where the stock market
was down very sharply and we started to
see home prices uh turn turn South
particularly in some of those hot
markets where tech jobs you know had
helped drive those prices up as the
check sector cooled you started to see
prices fall so that had a pronounced
impact on the netw worth lot of
households in 2022 some of that has come
back in 2023 as markets have rebounded
not quite to the record levels seen at
the beginning of 2022 but Hardy rebound
nonetheless 2023 saw a slight bull rally
during the summer despite rate hikes
thanks to a strong and resilient
consumer a lot of the hurdles that were
in place in January are still in place
right now it is it's not as if we've
seen some sort of super positive
reinforcement of like this is why we can
get rid of that sort of uncertainty and
replace it with certainty regardless of
the country's economic standing many
Americans are feeling the pain of
inflation and the cost of Revenge
spending as even the wealthy are
exhausting their savings and are leaning
on credit cards to remain afloat in a
tough economy company's recession fears
have stonewalled the white collar job
market listings compared from a year ago
today show a nearly 40% drop in banking
and finance jobs and a 50% drop in Tech
roles thousands more are being laid off
in the tech sector Microsoft is cutting
10,000 jobs and and Google's parent
alphabet is reducing its headcount by
12,000 jobs that follows other Hefty job
cut announcements from Amazon and
Salesforce earlier this month headline
here is that any Bank not led by Jamie
Diamond has been cutting jobs this year
if you look at the big six Banks who've
all reported Wells Fargo is the biggest
sort of perpetrator here they've cut
about 11,000 jobs or about 5% of their
Workforce just this year alone and you
look at uh another one and that's uh you
know apart from Wells Fargo there's also
sacks and both of these institutions
have had these you know businesses that
are hit into the wall of high interest
rates ubs's 2023 Global wealth report
found that America lost 1.8 million
millionaires in 2022 the main culprit a
weak stock market the S&P 500 dropped by
19% that year for a current post on how
the wealthy are holding up Bank of
America released its August 2023
consumer checkpoint survey it found that
high income households have a weak weer
economic confidence and are more
cautious on spending due to factors like
soft wage growth and job creation for
high earners which may be tied to the
rise in unemployment claims from the
group there are some higher inome
households that their budgets are
significantly stretched they have leaned
against credit kind of bridge that Gap
household debt has gone up in particular
credit card
debt credit card debt has swelled to
more than $1
trillion despite higher income
households buying more discretionary
items this still points to another
headwind for the wealthy when
millionaires look at their risks right
now they mainly see the stock market
because that's the source of their
wealth despite rallying in summer 2023
the stock market is now getting hit by
surging bond yields and a prospect of
higher interest rates for longer some
people say we could have a weak stock
market for a long time because interest
rates are so high that would mean that
there's not going to be much wealth
creation may not be much wealth
destruction but unless you're adding
wealth unless you're growing
millionaires all those companies that
survive based on rich people spending
whether it's luxury real estate whether
it's luxury fashion whether it's boats
cars planes all those companies are
going to see slower growth because
they're all driven by the stock market
and it all depends what happens with
that stock market in the next
[Music]
year
the second quarter for all the luxury
companies saw something we hadn't seen
at least since pre- pandemic which was a
decline in Us sales not just slower
growth but an actual decline lvmh which
is the giant they always succeed they
actually reported a surprise 1% drop in
Us sales no one expected that that
followed richmont which owned cardier
lots of other brands reporting a 4% drop
in the US so the top 20 % of Americans
buy income account for over half the
spending when we sort of know this that
the wealthy those with the most money
spend the most and they have throughout
the past 30 years helped an economy
where the middle class has lost ground
the stickiness of inflation has even
millionaires cutting back on spending
for fine dining luxury vehicles and
charitable donations investors are
dealing with two things which is Market
uncertainty and low visibility and by
Market uncertainty what I mean is that
because of Market uncertainty for
investors it makes it difficult invest
because they don't know sort of where
things are going and that leads to low
visibility consumer spending is a huge
driver of economic activity so when the
wealthy stops spending it can slow the
whole country's economic recovery they
have to keep spending to keep the
economy going to keep the consumer
economy going to keep consumer companies
profitable
[Music]
around the world though the rich are
expected to get richer according to
ubs's report projections Global wealth
Will Rise by 38% over the next 5 years
reaching $629 trillion by 2027 and the
number of millionaires is estimated to
grow to 86 million up from the 59
million in 2022 and a recession in the
US along with the potentially
underperforming stock market Market
could create the right conditions for
America's Rich to bounce right back the
wealthy right now the mood is very Grim
because they see high inflation being
very sticky and high interest rates
sticking around for a long time which
means their stuff their assets are going
to be worth less worth households they
tend to have a larger uh percentage of
their portfolio in cash and a lot of
that's just around wealth preservation
what you're going to see is more high
debt worth investors putting money into
the safe haven Investments and just
really Bing their T if the economy does
slump if we do end up in a recession
that those investors now have the dry
powder to be able to buy other assets at
distress prices there's an old
expression that a recession is like a
garage sale for the wealthy that's the
time where a lot of wealthy investors
buy assets at distress prices that can
then ultimately grow their wealth over
time as they
[Music]
rebound
[Music]
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